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A U.K. Ban on Crypto Derivatives Will Hurt, Not Protect Investors



This week the U.K.’s Financial Conduct Authority (FCA), which regulates the country’s financial services, issued a ban on the sale of crypto derivatives and ETNs to retail investors. 

While this may not seem particularly material to crypto asset markets overall – U.K. retail investors weren’t that much into crypto derivatives anyway, and the market hardly reacted at all – it is worth paying attention to for the alarming message contained within.

This message loudly says: “We don’t like crypto assets.” 

In case you think I’m exaggerating, the policy statement opens with the sentence: “There is growing evidence that cryptoassets are causing harm to consumers and markets.” (Actually, there isn’t, and to see a financial regulator make such a bold claim with no supporting evidence is jarring.)  

The message itself is fine; not everyone likes crypto assets. But this is a financial regulator whose job includes protecting investors, not passing judgement on new asset groups. The documents accompanying the ban read like a reflection of the personal opinions of some senior members, and represent a gross overstep of the regulator’s mission and remit.

Ironically, this is exactly the type of unreasonable centralized control that crypto assets were created to circumvent. 

Too difficult

A secondary message, also alarming, says the FCA thinks retail investors are incapable of understanding new topics.

The reasoning is couched in a “for your own good” tone – the FCA assures investors it is preventing losses of between £19 million and £101 million a year. This in itself insults retail investors’ intelligence, as whatever method they used to calculate this figure produced too wide a band to be even remotely credible. I wonder how much the same retail consumers lose on the National Lottery every year. 

Let’s take a look at the five main reasons for the ban, according to the FCA bulletin.

1) First up is the “inherent nature of the underlying assets, which means they have no reliable basis for valuation.” Seriously, show me something that does in these markets. OK, that might be a slight exaggeration, but the idea that market prices respond to fair valuations went out the window months ago. 

Plus, crypto assets are a new type of asset. They don’t respond to traditional valuation methods, but this does not mean they don’t have any value drivers. Plenty of work is being done to deepen and spread understanding of what these are.

2) Second, we have the “prevalence of market abuse and financial crime in the secondary market (eg cyber theft).” You may recall that, at the end of September, leaked documents known as the FinCEN Files showed that the U.S. Treasury has labelled the U.K. a “higher risk jurisdiction,” because of the relatively high incidence of financial crime that has nothing to do with crypto derivatives.

3) The cited “extreme volatility in crypto asset price movements” is also an unjustified excuse. Crypto assets are volatile, but bitcoin’s volatility has been heading down over the years, and is not as volatile as some equities on which investors can buy derivatives. Yet you don’t see U.K. retail investors being banned from buying or selling Tesla derivatives.

4) Throughout the statement, the FCA refers often to the “inadequate understanding of crypto assets by retail consumers.” This is just plain condescending. How do they know the understanding is inadequate? This assumption is tantamount to assuming retail investors are incapable of doing their own research and understanding the material. I’m certain there are many retail investors who understand crypto assets better than the FCA does. 

What’s more, FCA consumer survey results released in July of this year found that “the majority of crypto asset owners are generally knowledgeable about the product, are aware of the lack of regulatory protection afforded and understand the risk of price volatility.” The FCA’s own research shows that retail crypto investors have done their homework. Deciding that homework is “inadequate” seems an inappropriate step for a financial regulator to make, especially when no justification is offered.

5) And finally, perhaps my favorite one, we have the “lack of legitimate investment need for retail consumers to invest in these products.” Is it the FCA’s job to determine what the market needs? Does the market really need more equity ETFs? Many well-known investors, with long track records of respectability and rigor, have argued that crypto assets do fulfill a need for a hedge against inflation and financial turmoil.   

Too easy

As if more evidence was needed that this is not about a lack of disclosure or oversight and more about dampening interest in a new asset type, the ban includes Exchange Traded Notes (ETNs). This is likely to have a greater impact than the derivatives ban, as ETNs are a meaningful onramp into the crypto markets for retail investors. It is also more perplexing, as ETNs are much less risky than derivatives.

The risk profile is irrelevant, however. The FCA acknowledges that ETNs are sold with an information-packed prospectus, but even that “will not allow retail consumers to value crypto ETNs reliably.”

The FCA also acknowledges that ETNs trade on regulated exchanges. However, “retail consumers are still unable reliably to predict potential price impacts caused by issues in the underlying crypto asset markets” (as if it were easier in stock markets). This means, you guessed it, that they “cannot value them or the ETN reliably.”

And, ETNs are not leveraged. But that doesn’t matter, what is important is investors’ ability to value things correctly

Within bounds

You’re probably wondering why the ban didn’t extend to crypto assets themselves, when it’s obviously the assets that are the problem, not the packaging. 

The answer might lie in the same consumer survey mentioned above, which showed that 83% of U.K. residents that had purchased cryptocurrencies had done so through non-U.K. based exchanges. Perhaps the FCA realizes that an outright ban would be futile? Or perhaps the very same companies that finance the FCA (members of the U.K.’s financial services industry) have applied some pressure to save what could be profitable revenue streams in the future?

In banning derivatives, though, the FCA is failing in one of its principal remits. Making it harder for small investors to hedge their positions, and/or pushing investors to less regulated offshore platforms, does not sound like consumer protection. And removing the relatively safe onramps of ETNs from the range of crypto instruments available means that retail investors have to handle their own, possibly less secure, custody arrangements.

The ban is also hurting the crypto industry. Derivatives are an essential component of efficient markets. They help with price discovery by allowing expression of a variety of opinions, and they encourage liquidity by offering downside protection. Crypto derivatives are still available to institutional clients who dominate the markets, so the immediate impact is likely to be minimal. But measures like this exacerbate inequality, concentrating return opportunities in the hands of those that have financial power. Markets should not just be for the institutions. 

Note that the ban extends to self-certified sophisticated investors and high-net worth individuals, on the grounds that these investors stand to lose even more. The FCA has decided that these experienced and/or wealthy individuals do not have the right to use their own money to take on financial risk of their choosing.

Doing the work

Now, fair, crypto assets are tricky to value. Many theories abound, yet no one “knows” how to do it. We have here a young market with totally different fundamental drivers, running on a technology that spins off totally different data sets that analysts across the industry are digging into. 

This is one of the reasons we started our series of reports and webinars on crypto asset fundamentals, with a view to furthering the conversation about how to value crypto assets. It is also one of the most exciting aspects of our industry: the opportunity to “discover” uncharted (pun) territory in asset research, to set the bases for continuing exploration and to develop a new discipline in financial analysis. 

As our knowledge evolves, valuation models will emerge, with additional insight provided by granular data unavailable to investors in traditional assets. Crypto assets will eventually be seen as a much more transparent and information-rich type of investment than stocks, say. One day we will look back and marvel at how we trusted information provided by issuing companies themselves, audited by contracted service providers, sold on platforms with hidden or hard-to-understand fees. And the emergence of crypto assets and their unusual data sets is likely to have the biggest influence on investment valuations since Graham and Dodd unleashed their security analysis framework in 1934.

Investors’ inability to fairly value crypto assets is not the problem. The FCA’s lack of foresight is.

Anyone know what’s going on yet?

On Friday, bitcoin broke through $11,000 for the first time since mid-September, after a week languishing around $10,600.


This could partly reflect the weaker dollar toward the end of the week and the return of optimism to equity markets. It could also be as a result of the news that payments processor Square has purchased close to $50 million worth of BTC for its treasury – the purchase already happened, but the market seems to expect other corporations to follow suit.

Furthermore, it feels significant that the BTC price weathered several blows during the past two weeks (such as the criminal charges brought against derivatives exchange BitMEX, a notable hack on crypto exchange KuCoin and the disruption of stimulus talks in the U.S.) without notable declines.


Indeed, in spite of significant market news, bitcoin’s 30d annualized volatility dropped to levels not seen since the doldrums of the summer.



Payments company Square, led by Twitter CEO Jack Dorsey, has joined the ranks of companies putting part of treasury holdings into bitcoin. This week it revealed that it has purchased 4,709 bitcoins, a $50 million investment representing 1% of the firm’s total assets. TAKEAWAY: Square has done more than put part of its treasury into bitcoin. It has also written a how-to for other firms considering doing the same. This could end up doing even more as encouragement than the publicity around the investment, as I suspect that the idea of placing corporate funds on totally different rails, using unfamiliar intermediaries and confusing custody arrangements, must be terrifying for corporate treasurers. Square even explains how the holding will be accounted for on the balance sheet, detail I haven’t seen anywhere else.

Tumbling prices for many decentralized finance tokens have eased congestion on the Ethereum blockchain, bringing fees back down to August levels. TAKEAWAY: The problem has not gone away, however – fees are still well above the levels seen in the first half of the year, and may still exert a dampening influence on network growth. 


(NOTE: To learn more about the role fees play in the Ethereum ecosystem development, join us for a day-long virtual event focused on Ethereum and its upcoming update.)

The Chicago Mercantile Exchange (CME), the largest U.S. regulated market for bitcoin futures, has been sounding out cryptocurrency traders to gauge their interest in a listing of ether (ETH) futures and options. TAKEAWAY: Last year, the Chairman of the U.S. Commodity Futures Trading Commision (CFTC), Heath Tarbert, said on stage at a CoinDesk event that he expected to see ether futures in 2020. At the time, I expressed skepticism, mainly because of the uncertainty surrounding the upcoming Ethereum 2.0 launch. I will be happy to be proven wrong, however, as ETH futures on a regulated derivatives platform will give institutional investors more choices in framing their investment theses. 

Filings for the first half of this year show Charles Schwab Investment Management Inc. and two Vanguard funds purchased shares in crypto mining company Riot Blockchain. A handful of Fidelity funds invested in Riot, bitcoin mining services provider HIVE, mining company Hut 8 and Hong Kong-based digital asset platform BC Group. TAKEAWAY: This hints at a growing interest in listed companies with exposure to crypto asset markets, which can be held in a wider range of regulated funds than a direct crypto asset holding can. For deeper insight into some of these companies, check out our recent crypto industry company reports.

Ria Bhutoria of Fidelity Digital Assets explains the role of prime brokers in crypto asset markets – as with everything crypto, it’s different from the traditional counterpart. 

Investor Lyn Alden takes an analytical look at bitcoin correlations, and how the bitcoin price fares in times of positive vs. negative real yields, and the impact of stimulus package talks. Worth a read. 

Podcast episodes worth listening to:

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MicroStrategy Buys Additional 13,005 Bitcoin for $489 Million




With the current BTC price, MicroStrategy’s total Bitcoin holding is worth more than $3.4 billion.

MicroStrategy Inc (NASDAQ: MSTR) has continued its Bitcoin acquisition spree as it has purchased another $489 million worth of BTC. As of the 21st of June, the Nasdaq-listed business intelligence company holds 105,085 Bitcoins.

The company announced its latest Bitcoin acquisition earlier today. According to the company, the newly acquired BTC totaled 13,005 at an average price of about $37,617, fees and expenses included. The purchase came after MicroStrategy generated $500 million in cash from the sale of debt to fund the purchase of BTC.

Before MicroStrategy purchased the most recent Bitcoin, the company had unveiled plans to buy Bitcoin in a filing with the US Securities and Exchange Commission (SEC). In the filing, MicroStrategy said it would be selling up to 1 billion of its class A common stock through an “Open Market Sale Agreement” with Jefferies LLC. The company added that proceeds from the stock sales would be used to buy more Bitcoin. MicroStrategy explained:

We intend to use the net proceeds from the sale of any Class A common stock offered under the prospectus for general corporate purposes, including the acquisition of bitcoin, unless otherwise indicated in the applicable prospectus supplement.

MicroStrategy Focuses on Bitcoin Acquisition

In addition, MicroStrategy has made Bitcoin acquisition a focus for the company. The company said that it mainly pursues two corporate strategies. Apart from growing its enterprise analytics software business, a major strategy for the company is to acquire and hold BTC.

In the SEC filing, the Nasdaq-listed company added that it is currently seeking opportunities to implement Bitcoin-related technologies like blockchain analytics into its software offerings. Also, the company intends to hold its Bitcoin holdings long-term and not engage in regular trading.

MicroStrategy became the first publicly-traded company to buy Bitcoin in August 2020. At the time, the company bought 21,454 BTC worth $250 million, making BTC its primary treasury reserve asset. When MicroStrategy made its initial Bitcoin purchase, BTC was trading at $11,653 per coin. This means that the price of Bitcoin has surged about 5 times since the first purchase.

After debuting into the crypto space in August last year, MicroStrategy had purchased more and held more than 90,000 BTCs before its latest acquisition, announced on the 21st of June.

At the time of writing, Bitcoin is hovering around $33,000. With the current BTC price, MicroStrategy’s total Bitcoin holding is worth more than $3.4 billion. According to MicroStrategy, its new subsidiary – MacroStrategy, manages about 92,079 BTC of its coins.

MSTR stock is currently at $595.79, a 7.64% decline over its previous close of $646.46. The company has grown nearly 403% in the last twelve months and 53.57% in its year-to-date record. In addition, MicroStrategy stock has gained more than 26% over the past month. However, MSTR has shed 17.65% over the past three months and has dropped 0.30% in the last five days.

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Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience. Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.

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Wise Fintech to Go Public via Direct Listing on London Stock Exchange




In the future, Wise plans to roll out OwnWise, a client shareholder program that will allow its users to own a stake in the company.

British fintech Wise, formerly TransferWise, announced Thursday its plans to go public via a direct listing on the London Stock Exchange (LSE). The money transfer company said it had sufficient funding and therefore, did not require underwriters or issuing of new shares.

Wise will pioneer direct listing in London, a deal which will be finalized on July 5. Sources speculate the listing could value Wise at anywhere between $6-7 billion, up from its latest $5 billion valuations. This would also make it one of the biggest floats this year.

Founded in 2010, Wise has managed to accumulate 10 million customers who use its services to send £5 billion ($7 billion) every month. Its rivals include Western Union and MoneyGram in addition to startups like WorldRemit and Revolut.

Since 2017, Wise’s track record shows consistent profitability with a 54% annual growth rate. The latest 2021 fiscal year report shows it made £30.9 million in profits out of the £421 million ($589 million) sales revenue. This year, the company’s payments app registered £54.4 billion of international transfers for 6 million clients.

Wise Listing on LSE

Listing the giant company is a great accomplishment for London as it competes with “The Big Board”, New York Stock Exchange Group (NYSE), to attract more high growth and Blue-chip firms. As of 2020, the NYSE had 2800 company stocks and its market cap as of June, 2021 was $24.68 trillion. LSE, on the other hand, has listed over 1300 companies and its market cap is at 40.08 from today’s MarketWatch data.

To further this development, the British government is considering increasing leniency in firm enlisting guidelines to encourage issuing of dual-class shares. However, European stock markets have been hit with a lot of volatility this year, with at least two IPO cancellations in recent weeks.

The dual share structure is what Wise is opting for as it allows them to retain voting control while accommodating investors and customers into their shareholder base. At present, however, it locks them out of the lucrative Financial Times Stock Exchange (FTSE) indices.

Nevertheless, the company intends to issue both class A and class B shares with the latter holding the privilege of 9 votes per share. The expiry for Class B shares is in the fifth year following Wise’s IPO. It is likely for concerns to arise over this structure as it may give executives excessive influence on shareholder votes.

In the future, Wise plans to roll out OwnWise, a client shareholder program that will allow its users to own a stake in the company. Financial endeavors for the company are advised by Goldman Sachs, Morgan Stanley, Barclays and Citigroup.

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A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies.
Mythology is my mystery!
“You cannot enslave a mind that knows itself. That values itself. That understands itself.”

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JPMorgan Acquires Nutmeg Robo-Advisor, Furthering UK Retail Banking




Before the deal, JPMorgan and Nutmeg had partnered late last year to offer clients an assortment of globally diversified exchange-traded funds (ETFs).

JPMorgan Chase & Co (NYSE: JPM) said Thursday it has closed a deal to purchase Nutmeg, an online investment management service, for an unnamed price. US biggest bank hopes the agreement, which awaits regulatory approval, will complement its launch of a standalone digital bank brand in the UK during the year.

Using the latest technology from Nutmeg will help boost JPMorgan’s retail and institutional push since the company aims at establishing as many branches as it can outside the US.

With over £3.5 billion (4.9 billion) worth of assets under management, the decade-old Nutmeg is one of the UK leading and award-winning robo-advisors. The company offers various investment accounts including Individual Savings Accounts (ISAs), general investment, and pensions accounts.

Additionally, its competitors include Wealthsimple, Moneybox, and Moneyfarm. Before the take-over, Nutmeg had raised over $150 million in investments from Goldman Sachs and the British venture capital firm – Balderton Capital.

JPMorgan CEO Jamie Dimon stated last year that the banking giant would be “much more aggressive” in adding assets by conducting more acquisitions. The bank may also be stepping up to competition from adversary Morgan Stanley (NYSE: MS) which, in recent years, has spent $20 billion in merger agreements with E-trade and Eaton Vance.

Dimon also mentioned leveling up against blue-chip tech firm Alphabet Inc (NASDAQ: GOOGL) and other fintech firms such as PayPal Holdings Inc (NASDAQ: PYPL).

JPMorgan Stock Market and Nutmeg Acquisition

Before the deal, JPMorgan and Nutmeg had partnered late last year to offer clients an assortment of globally diversified exchange-traded funds (ETFs). This is not the first time the bank has partnered with a company then acquired it later. In October 2020, JPMorgan partnered with 55ip, a tax-smart fintech start-up, then bought it a couple of months down the line.

Differing regulatory guidelines in Europe and the UK made it necessary for JPMorgan to purchase the robo-advisor, rather than use investment technology available in the US. However, its US-based investment service You Invest is currently doing well, with assets valued at about $50 billion, as Dimon states.

JPMorgan’s tech initiative marks one among many happening in Britain’s retail banking sector. Banks such as Revolut, Starling, and Monzo manage digital-only checking accounts which have attracted a host of clients. Going by data from Innovate Finance, FinTechs in the UK probably make up the world’s largest markets, having pulled in $4.1 billion investment from venture capitalists as of last year.

JPMorgan Securities served as financial advisor in the JPMorgan-Nutmeg transaction, while Freshfields Bruckhaus Deringer acted as legal counsel. Arma Partners was Nutmeg’s financial advisor and Taylor Wessing was legal counsel.

As of June 17, 2021, at 7:59 p.m. EDT, JPMorgan stock closed at $151.76, down 2.89%. In the after-hours session, it was trading at $151.48, down 0.18% in 24-hours.

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A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies.
Mythology is my mystery!
“You cannot enslave a mind that knows itself. That values itself. That understands itself.”

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